David, it has to be recognized that it's a big legislative accomplishment. It's a larger bill
passed sooner than other presidents have achieved, but I don't think it's gonna take the
country in the right direction. I think it's going to grow our budget deficits in the future
very substantially, and you're already seeing some market reaction to that. And I think
that what it does to our social safety net is really gonna be devastating
relative to the path the country would have been on. If you look at cutbacks in the social
safety net, there were cutbacks, uh, in the welfare reform bill that was passed during Bill
Clinton's presidency. There were cutbacks made by President Reagan in his original tax and
budget legislation. This is the largest cutback in the social safety net that
anybody has uh been able to, uh, find. And it's coming at a
time when we appear to be on a trajectory to massive cutbacks in
spending on scientific research, massive cutbacks in support for the
arts and, uh, humanities, maximum, uh, cutbacks in
support for foreign assistance. Programs including ones on which uh large numbers of
AIDS patients in Africa are dependent for their life saving uh
medicines. So this is legislation that to my mind both
compromises our capacity to defend ourselves as a country because of all of the debt.
And frankly compromises what makes our country worth defending in terms of being a
humane force in terms of the world in terms of our sense of national community and
protecting everybody in terms of. Some of our greatest contributions to humanity in
both the sciences and the arts and so I think this is a very
troubling piece of legislation in ways that go
beyond the problematic immediate economics. This one big beautiful bill is one part of a
more sweeping plan that President Trump has for, I think it's fair to say, really redoing
the American economy. And yet we don't see much reaction yet from the economy in the
numbers. I'll give you an example. In the tariffs, a lot of talk about tariffs, a lot of
fear about tariffs, and yet if you look at the CPI numbers, the PPI numbers are coming out,
they don't indicate the inflation that most economists predicted. I think it's, uh, early
days. It may be that there are a set of other developments going on
through artificial intelligence, through technology. That are exerting a
deflationary force. It may be that people, given all the huge
uncertainties about tariffs are waiting to see how it shakes out before they establish
their new, uh, price structures. It may be that for a time. It's
possible for the people in the middle to eat uh the tariff increases in order to
try to get uh market share. I agree, I agree with you, David. I would have
expected more inflation and What you have always have to do as an economist is
watch uh the data and be prepared to change your mind. But for now, I
think that I wouldn't want to rush to a judgment that these tariffs are innocuous, uh,
for inflation. I think the more likely thing is that they're gonna be somewhat more
delayed, uh. In their impact. Certainly there have been many
careful studies that compared the sectors that were tariffed and the sectors that were not
tariffed during the president's first term and found the tariffs did translate into
higher prices. So I would rather wait and see. On this, I
think that's the approach that the Federal Reserve is taking, and I think frankly that is
the right approach. I mean we've really seen a move up in the 30 year yield. We're above
5% relatively constantly now. There are some who are concerned about exactly what that's
telling us about inflation expectations and term premium. David, you know, I look at the
10 year market relative to the 20 or 30 year market as a sign of
where the markets see very long term rates going over the very long term
what market participants call the forward rate and we now have forward
rates on regular bonds that are well above 5%.
And forward rates on tips on bonds linked to inflation that are well
above 3%, and those are ominous indicators about our nation's
credibility over the medium term. They're ominous indicators with respect to the
government's ability to issue long term uh debt. They're
ominous indicators with respect to the deficit because if you look at the
projections people quote from the Congressional Budget Office from other places,
they're building in much lower interest rate assumptions. So I think if you look at
what's happened to bond markets, if you look at what's happened to the dollar.
You have to view our nation's fiscal situation with considerable trepidation
and concern. While the government grapples with all that debt it's taking on, consumers
and small businesses have their own responses to Trump administration policies, as Bank of
America Chairman and CEO Brian Moynihan explained. So if you look on the consumer side
in our 70 million consumers who engage with the economy every day and they send through
their accounts and in their And spend the cash and everything about 4 trillion $5 trillion a
year that grew up 4% plus the second quarter 25 or the second quarter 24. So they,
because they're employed and because of wage growth, and that's not every single consumer,
but in the large in the main they are continuing to grow and spend more and that
helps the economy and so you're seeing in some of the. Uh moderate income households, there's
a little bit of shuff moving around to different things. You're seeing people trade
from one thing to another, less planes, more cruises earlier, that's leveling out now. A lot
more going to movies because the movies are good, but at the end of the day they're
spending discretion necessary at about the same percentage they traditionally spent.
They've got money in their accounts. They're employed and the wage growth has been
relatively strong and. Yeah, so they're in pretty good shape. The credit quality is good.
They have equity in their homes, the low rate financing in the mortgage. So conservative is
pretty good. When you go to small businesses, that's more the question, small, medium sized
businesses because the interest rate environment hits them harder because they
borrow on lines of credit short term for a lot of their activities, and that rate went up
substantially. And then you think about the if I'm a $100 million dollar company, a $50
million company here in North Carolina and I'm engaging in the world finance, I'm importing
goods and manufacturing them. For manufacturing and selling them, you know, it
got pretty interesting here trying to figure out all the trade and tariffs. So I think the
certainty on the tax rate helps them, uh, meaning the big beautiful bill passing and the
tax rate. That's a very good thing. The alternative would have not been good if their
tax rates would change a satisfactory resolution to the trade so that they can learn
the rules of the road over the next 30, 60, 90 days and get their plans for next year put
together. And I think ultimately they're we're gonna have to satisfactory resolution on
immigration and population growth because at the end of day what I'm hearing more from the
construction companies, farming companies, and traveling entertainment type companies is I'm
starting to worry about I'm starting to struggle with labor availability at any price,
and that's not that we got to make sure they have the workers because they will supply great
service economy continue to grow.